What They'll Never Tell You About the Music Business

by Peter M Thall

  Is the prospective manager related in any way to your publishing company or your recording company? If so, the conflict of interest potential is fairly serious. You should be very careful to delineate the responsibilities of your manager, your record company, and your music publisher so that each separate entity (management, recording, and publishing) can function on its own, independent of anyone’s interest except yours.

  Does the manager understand and share your vision—short, medium, and long range? This may be the most important criterion of all. Your manager must also bring something to the table to facilitate and implement achieving that vision—be it experience, creativity, a functioning office and staff, money, just being hungry enough, or some combination of the above.

  How assertive (or aggressive) a marketer is the manager? A good manager must have the ability to energetically and effectively market you to the public and to the music industry. He or she must take a proactive role, particularly vis-à-vis the record company, and must be tenacious. A Scorpio (stubborn—never gives up) would do just fine. A tiger is an apt animal comparison. Your manager must be able to find, facilitate, and create opportunities for you.

  Are the manager’s people skills good? An effective manager has to be able to deal with all kinds of people.

  How developed are the manager’s organizational skills? We have already discussed the value of organizational structure. While it is not necessary to rise to the level of Robert’s Rules of Order, tight organization can be very useful not only in tactical and strategic planning, but also in identifying patterns of problems, achieving easier and more effective communications, and avoiding problems before they occur. If neither your manager nor any other team member has the requisite organizational talent to achieve these ends, you and your manager will have to hire someone who does.

  What kind of reputation does the prospective manager have? He or she should have a reputation for dedication, loyalty, and brutal honesty (and you must be able to deal with that). You do not need any more yes-men than will naturally gravitate around you. Keep them around if you want to, but don’t pick one for your manager.

  Is your manager willing to take calculated risks? A corollary to this is, Can you accept failure if the risky move doesn’t pan out? In the event of failure, you must avoid responding by punishment or rejection. In such an event, your manager should be open and honest enough to discuss with you the thinking behind the risk taking and how to avoid failure in the future, if possible—pushing the envelope while being realistic as to the balance between risk and reward. Short of a material breach of the management agreement, there is very little that you can do to “punish” the manager anyway. Nevertheless, I have seen too many artists turn a deaf ear to the manager and disappear into the ether rather than confront the problem directly and move on from there. The “punishment” too often will end up at the artist’s door if he or she has not used the negative experience to build for the future.

  What abilities does the person have specific to music? Your manager should have a musical sensibility, meaning that he or she can guide you in building your musical team, and in achieving an effective musical entity and presenting it. This may involve auditioning and selecting sidemen for recording dates, and even adding or subtracting from your band if necessary. In addition, your manager must be able to understand the sound system that is or should be installed at your gigs, how to deal with its cost to minimize rental requirements, and how to identify those people who can help realize your sound needs and potential.

  How well connected is your manager at that level of the music industry in which you find yourself? Does your manager have the awareness and ability to make additional contacts in order to achieve the level of familiar and effective relationships that you will need at the next level?

  How well-heeled is your manager, and how willing to spend money on the right things? Particularly early in your career, your manager should be able to invest money in your career to assist you in wardrobe planning and purchase, outfitting your band’s instrument and sound equipment needs, moving you around from gig to gig, and helping to defray your living costs, if possible. (I knew a manager once whose philosophy was not to spend one dime on his struggling artists. One of those artists was so frustrated that he wore a sandwich board and walked around with a monkey and a cup looking for donations. The fact that he did this most of the time in front of his manager’s home office was not appreciated and the two ultimately parted ways. The manager never did change his style.)

  The manager must have enough cash to maintain an office, communications (cell phone, telephone, fax, email), and minimal staff. Your manager should also have sufficient funds to travel where required on your business.

  PAYING YOUR MANAGER

  There are two basic ways a personal manager in the music industry can be paid: (1) on the basis of one of numerous permutations and combinations of a percentage (commission) of the artist’s gross or net income and (2) by a flat fee.

  Percentage of Gross Income

  Most personal managers seek to be paid a 15% or 20% commission based on the artist’s gross income, but 25% is not unheard of. For reasons I will never understand, rarely do managers receive commissions somewhere in between—for example, 18.5%, 16%, 14% decreasing to 11.5% after a stated amount of commissionable income has been received, etc.

  Why a promised percentage? For some very good reasons. It is quite difficult for personal managers to provide management services without being paid—but that is exactly what often happens with beginning artists. As an artist’s career develops, but earnings remain virtually nonexistent, managers must invest more and more of their time, money, and staff (overhead). It is easier if the artist’s career starts and either succeeds or fails quickly. It is far more difficult, and complicated, when the career builds over time (for example, Billy Joel, Garth Brooks, Shawn Colvin, Moby, Death Cab for Cutie—even Lorde who was signed to Universal Music Australia when she was a young teen). For with this scenario, few managers have the wherewithal to dig in their heels for an extended—what may seem endless—period of time. The issue is a financial one, not an emotional one, and it often doesn’t matter whether or not the manager believes in the artist. Belief cannot pay the rent, or the staff, or the costs associated with managing a working band. In addition, the accumulated investment, over time, can be enormous. A management business, like any other business, cannot survive without income. Not only are most managers in this situation unable to tap into unlimited resources in order to sustain their offices, they cannot staff themselves with capable assistants who, themselves, have careers to consider.

  Even successful management companies will not allow a “nonprofit center” to exist for long. Without adequate recompense, good assistants will leave or—worse—be stolen by other management companies with more action—and more money to offer. The only way to compensate the manager-investor is with a percentage of income because if the artist is successful, there really is the promise of a pot of gold (or at least a paid-off mortgage) at the end of the rainbow. No pot, no manager. That’s the way it is. And I, for one, cannot blame them. I know very few lawyers who will make that kind of investment in an artist’s career. Sure, some will wait a while to be paid and some will shave down their fees to accommodate a fledgling artist. But it is a rare lawyer or law firm that can sustain the kinds of losses that occur when a baby band or a band in the second stage of development embarks on a recording and touring career. A lawyer’s overhead is usually considerably higher than a manager’s overhead; a manager is of a different mindset than a lawyer and is willing to do the things that managers do well and lawyers either do not know how to do or do not want to do (for example, play emergency doctor 24/7). And lawyers are not inclined to invest substantially all of their time chasing a career of one or two clients for percentages that are traditionally out of whack with those that lawyers, even those working for a percentage, charge in this country. Sure, a personal injury lawyer will ta
ke on a case for one-third of the recovery of a case even if the case may take five years to resolve, but John Travolta and Civil Action aside, such a lawyer must take on hundreds of such cases in order to sustain a law practice. Lawyers who charge a percentage for their services customarily charge between 5% and 10% of their clients’ income, but they also are quite careful to accept clients who actually have income and not just the promise of income. They also operate out of offices with associates and assistants. It is the rare manager who does not leave the office, or the city, for that matter, for hours and days—and even weeks—on end. This routine will simply not work for a lawyer who desires to establish a stable law practice. So cut a little slack for managers who insist on a percentage of your future income.

  How does one determine what is a fair percentage of income to pay a manager? Is it a percentage of gross income, net income, or something in between? And should there be a cap, or limit, on the amount of money that will ultimately be paid in the event the artist is really successful? We are entering the smoky and mirrored house of the Manager’s Piece of the Action!

  On the face of it, an 85/15 split between artist and manager sounds quite—for want of a better word—manageable. Unfortunately for the artist, the manager’s 15% is almost invariably taken out of the artist’s gross income. For example, if your live gig brings in $1,000, the manager receives $150.00. Let’s say that the costs for the particular gig (hall, transportation, equipment rental, invitation cards, flyers, postage) are $500 and there are four people in the band. Your agent gets 10%, or $100. After the manager is paid $150, there is $250 for you to split four ways ($62.50 each). Now suppose that the date is so badly planned (managed?) that the costs rise to $750. Unless you have another understanding with your manager, he or she will receive $150 and you will receive—0!

  Of course, this scenario deals with what I described earlier in this chapter as the first distinctive time period of an artist’s career—the development level. At that level, most managers either postpone payment of their commission until you are a bit more flush, or forgo it entirely. But what happens when things are rolling (the end of the first and the beginning of the second level) and the single gig is expanded to forty dates, generating performance fees of $25,000 each? The gross is $1 million. Your manager will receive $150,000 (15% of gross). If the costs are $500,000 (costs of operation of one-half of the gross is usual), you will receive one-fourth of $250,000 (still assuming that your four-person band splits the money evenly) or $62,500, and your agent will receive $100,000 (10% of gross). (It has become fairly standard recently (much to the dismay of individual agents) that agencies will give cut rates—a percentage or two—to certain successful artists, so the long-sacrosanct 10% is no longer the rule.).

  So how does the 85/15 ratio that the management agreement allegedly established really turn out for the artist? You may have to get out your calculators to see that, in the above example, of the $400,000 paid to the manager and artist combination—the net profits—your manager receives 37.5% and your band receives 62.5% ($250,000). Looking at it another way, the relationship between you and your personal manager in terms of the gross income is 25% for you and your band mates ($250,000) and 15% for your manager ($150,000). Remember the 85/15 ratio? It’s long gone. (It never really existed!) Now it’s 25/15—quite a difference. As the costs increase, whether or not this is due to inefficient management or the inefficient work of other professionals, such as accountants and lawyers, or simply because the market did not perform better, the ratio decreases even more. The $150,000, after all, stays. If a snowstorm cuts into the number of performances, the costs of the touring ensemble (staff, trucks, truck drivers, lodging, travel, food, etc.) remain the same. This affects your net income more than it affects your manager’s percentage of the gross. If the costs rise to $750,000? Well, you know the answer. The manager receives $150,000, the agent receives $100,000, and you receive—0!

  Is this exact scenario likely? Probably not. Has it happened? Yes. Has something in between 85/15 and 0/15 happened? Often. More to the point: Is it ever 85/15? No.

  Let’s look into how the artist/manager split is handled when you and your manager’s representatives are using their heads.

  Net Versus Gross

  One way to avoid the kind of disparity noted above is to deal with net touring income rather than gross touring income. In this way, your manager has an inherent interest in keeping the costs under control because the manager’s percentage will be worth more and more only insofar as your net is more and more. Legend has it that Patti Page (from the 1950s—“Doggie in the Window,” “Mockin’ Bird Hill,” “Old Cape Cod,” “Tennessee Waltz”) had a unique arrangement with her manager, Jack Rael, with whom she agreed to split every profit dollar down the middle. What was good for her was good for him and vice versa. If a tour made no money, neither of them did either. (I understand that they parted ways in the late 1990s after more than forty-five years—time for a change, I guess.)

  You and your potential manager and your respective legal representatives will no doubt spar intensely over whether this approach is as fair as the percentage of gross structure mentioned earlier. You will both try to determine whether it is fairer to both parties or only to one party to calculate management commissions on the net rather than on the gross. Remember, managers and their staffs invest a considerable amount of their resources and living time to set up an effective tour—even an unprofitable one. And it is not always your manager’s fault that the tour does not work. Is it just possible that you are a lousy performer? Or a brilliant performer in progress? Why should you appear full-blown like Athena from the head of Zeus? The rest of us had to develop on some kind of time line. You will most certainly have to as well. A percentage of net at this stage is usually a nonstarter for managers. On the other hand, you are investing a considerable amount of your own resources and living time to write, prepare, rehearse, and perform tours—time that puts into jeopardy family relationships and puts a strain on both yourself and your financial resources. Why should you not enjoy the benefits of a net calculation?

  In reality, very few managers will agree to a split based on net. Why? Probably because the cash flow to keep a management office running must be maintained on some functional level or the whole house of cards may come tumbling down. Eventually, it is in your interest to have a financially viable management, and if that means that a hunk of the gross must go toward financing it, there are many in my profession who will give that arrangement their blessing.

  This does not mean, however, that there exist no alternative ways to bring the ratio into some semblance of balance in the event that the financial facts are similar to those in my examples. Here are three.

  The Floor

  Some artists and managers create an agreement that stipulates that no matter what the profitability of a tour (or lack thereof), the artist, or the manager, or both, are guaranteed a minimum income by tour’s end. In this situation, to the extent there are any profits at the end of a tour, the artist receives a minimum amount before the manager, or the manager receives a minimum amount before the artist, or both are guaranteed a minimum amount.

  After all, as noted earlier, if your manager does not receive a share of the income during the actual course of the tour, he or she may not be able to finance the operation, pay staff, etc.—in short, do what the job description calls for. Big-time management companies do not have the same cash-flow pressures as fledgling management companies do, but big-time management companies are often too busy, too above it all, or simply not available to bother with a fledgling act. Similarly, if the artist receives nothing, there is no incentive to continue to tour, thus impacting not only the artist, but his or her manager as well.

  When a floor is established, you can provide for a reconciliation to be made semiannually or annually by your business manager so that the actual contractual ratio (for example, 85/15 of gross income) is reestablished down the road.

  The Ceil
ing

  Whereas most people work for a fixed income (often with a contingent or even guaranteed bonus), personal managers work on the basis of financial hopes and dreams. As mentioned at the start of this chapter, they are not paid for their services other than by a share of the artist’s earned income. They often work for nothing until there is something to share.

  But what happens when your manager’s income from your career is as good as guaranteed? You, who are creating the income by your writing, recording, and performing, often feel that a cap—a ceiling—should be placed on the income of those who originally provided their services in return for a commission—a percentage of the profits. This is true of booking agents and accountants as well as managers. It is occasionally true of attorneys as well when the attorney is compensated by being paid a percentage of your income.

  While, at the beginning of an artist’s career, “commission” professionals are risking time, money, and their own careers providing services to artists on contingency basis, there often comes a time when the risk is essentially gone and the compensation is truly out of proportion to the current services they are providing. Who is to say if the cap is fair, or when, if at all, it should be imposed? (For that matter, who is to say when the artist’s income is out of proportion to the value of the manager’s services? After all, $1 million for two hours of singing, like $40,000 per at-bat for a baseball player, is practically beyond rationalizing. Even when your manager’s commission is not guaranteed, there are times when artists and managers should revisit the concept of an unlimited commission and resolve to cap the manager’s income at some point below which no one could reasonably argue that this individual was being underpaid.